The global custodian mandate JP Morgan Suisse holds for assets amounting to CHF32bn (€34.1bn) for BVK, the Swiss pension fund for the employees of the canton of Zurich, is raising concerns around security risks following fears of sanctions and retaliation by the US administration under president Donald Trump recently revealed by another heavyweight pension scheme, Compenswiss.
As global custodian, JP Morgan Suisse holds the majority of BVK’s liquid assets, which account for around three quarters of the fund’s total assets worth CHF43.5bn, the spokesperson for the scheme Gökçe Schneiter told Tages-Anzeiger newspaper.
BVK has deliberately opted to mandate the branch of US bank JP Morgan in Geneva, which is subject to Swiss law and regulated by the Financial Markets Supervisory Authority (FINMA), to avoid risk on the fund’s assets should the new US administration decide to enforce tariffs against Switzerland, according to the report.
However, Kern Alexander, professor of international and European financial law and regulation, and chair of Law and Finance at the University of Zurich, told the newspaper that foreign legal entities controlled by an American company would automatically be subject to US sanctions.
This means that entities are hit by sanctions even if a US bank, in this case JP Morgan, is based in Switzerland.
“From the perspective of possible US sanctions, I think it is very risky for BVK to use JP Morgan as a depository bank,” Alexander added.
The currency in which securities are denominated is crucial. US securities in dollars are held in the US, Swiss securities in francs in Switzerland; in theory, sanctions would not have an impact on securities located in Switzerland.
BVK said it is constantly monitoring developments in the market, and it will take measures if necessary regarding the risk of possible sanctions imposed by the US administration.
According to the scheme’s spokesperson, it is common practice at BVK that mandates, including global custodian mandates, are “regularly tendered, and reassessed for risks, market-compliant services and prices”.
BVK’s asset managers under the supervision of the US Securities and Exchange Commission (SEC) consist of: PGIM for global and emerging markets corporate bonds, Principal Global Investors for US small-cap equity, and Townsend Holdings for global real estate.
Last month Compenswiss, with total assets amounting to CHF46.1bn, raised concerns of possible retaliatory measures by the US administration if State Street were to relinquish its global custodian mandate.
The Swiss Parliament could force the pension scheme to re-tender the global custodian mandate in favour of a Swiss bank.
Last year, Addor Jean-Luc, member of Parliament (MP) in the National Council, the lower house of Parliament, for the Swiss People’s Party (SVP), asked whether Compenswiss was planning to use BlackRock’s portfolio management software Aladdin, fearing that pension assets could be managed in the US in the future.
Interior minister Elisabeth Baume-Schneider said that BlackRock’s Aladdin portfolio management system was selected by Compenswiss independently, following a public tender process, in 2023.
Baume-Schneider stated that Aladdin is a central tool for asset management, allowing for monitoring an entire pool of assets, adding that assets would not be transferred abroad as a result of this change.
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